ECON-101 Lecture Notes - Lecture 3: Absolute Advantage, Comparative Advantage, Opportunity Cost
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18 Jan 2016
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The comparison among producers of a good according to their productivity. The comparison among producers of a good according to their opportunity cost (opportunity cost: the value of the next best alternative whatever must be given up to obtain some item) When a producer has a comparative advantage over another producer over the same good, that producer should specialize in that product as it is cheaper for them to make. How to calculate productivity to create a productivity chart: Problem: canadian and japanese workers can each produce 4 cars per year. Canadian worker can produce 10 tonnes of grain per year, whereas a. Japanese worker can produce 5 tonnes of grain per year. To keep things simple, assume that each country has 100 million workers. Canada has absolute advantage in producing wheat, but we should still trade with japan because trading is based on comparative advantages not. Absolute advantages and is therefore based on opportunity costs.
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